KETAN J. SHAH, MUMBAI V. DCIT CEN CIR 5(1), MUMBAI

ITA 340/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9944 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 27-06-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 16-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JANARDHANAN
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income; Corroborative evidences; Onus to prove
• Section: 14A; 144

Judgement Text

, SMC , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.340/MUM/2017 : ASST.YEAR 2013-2014 SHRI KETAN J.SHAH A-1, AMI DARSHAN, HAJI BAPU ROAD MALAD (EAST), MUMBAI 400 097. PAN : AMWPS6223R. / VS. DY.COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE 5(1) MUMBAI. ( / APPELLANT) ( / RESPONDENT) /APPELLANT BY : SHRI SATISH MODY /RESPONDENT BY : SHRI V.JANARDHANAN / DATE OF HEARING : 27.06.2017 / DATE OF PRONOUNCEMENT : 01.09.2017 / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) DATED 30.09.2016 AND PERTAINS TO ASSESSMENT YEAR 2013-2014. 2. THE GROUNDS OF APPEAL READ AS UNDER:- 1. LEARNED A.O. /CIT (A) HAS ERRED IN DISALLOWING INTEREST EXPENDITURE OF RS. 14,14,570=00 AGAINST THE PRINCIPLE OF EQUITY & NATURAL JUSTICE. 2. LEARNED A.O. /CIT (A) HAS FAILED TO APPRECIATE THAT ASSESSEE HAS EARNED INTEREST OF RS. 11,68,777=00 DURING THE YEAR WHICH OUGHT TO HAVE BEEN DEDUCTED FROM SAME. 3. LEARNED A.O. /CIT (A) HAS FAILED TO APPRECIATE THAT ASSESSEE HAS INTEREST IS PAID ON OLD LOANS WHICH HAVE BEEN ALREADY ITA NO.340/MUM/2017. SHRI KETAN J.SHAH 2 ALLOWED IN PREVIOUS YEAR ONLY RS. 17,500=00 INTEREST RELATED TO NEW LOAN. 4. LOOKING AT ABOVE FACTS YOUR APPELLANT PRAYS YOUR HONOUR TO KINDLY DELETE THE ADDITION OF INTEREST OF RS. 14,14,570=00 MADE BY A.O. & OBLIGE 5. YOUR APPELLANT CRAVES THE LEAVE TO, ADD TO, ALTER TO AND AMEND THE GROUNDS OF APPEAL FROM TIME TO TIME. 3. IN THIS CASE THE ASSESSING OFFICER PASSED AN ORDER U/S 144 OF THE INCOME-TAX ACT. HE NOTED THAT DESPITE SEVERAL NOTICES NOBODY FROM THE ASSESSEE RESPONDED. THE ASSESSING OFFICER MADE A DISALLOWANCE OF INTEREST PAID AMOUNTING TO RS.14,14,570 BY OBSERVING AS UNDER:- IT IS NOTICED FROM THE COMPUTATION OF INCOME THAT, DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS EARNED INTEREST INCOME FROM VARIOUS ENTITIES AT RS. 11,68,777/- AND CLAIMED INTEREST PAID(EXPENSES) AT RS. 14,14,570/- AGAINST THE SAID INTEREST INCOME. IT'S NEEDLESS TO MENTION HERE THAT, DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS NOT FILED PROPER DETAILS TO ESTABLISH THAT THE INTEREST PAID EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF EARNING INTEREST INCOME AS REQUIRED U/S. 57(III) OF THE I.T. ACT. THE ASSESSEE HAS ONLY FILED RETURN OF INCOME BUT HAS NOT FURNISHED ANY DETAILS IN SUPPORT OF THE EXPENSES CLAIMED IN THE RETURN OF INCOME DURING THE ASSESSMENT PROCEEDINGS. IN ABSENCE OF ANY EXPLANATION/DETAILS OF INTEREST EXPENDITURE, I HAVE NO OPTION BUT TO DISALLOW THE SAID INTEREST EXPENSES OF RS.14,14,570/- AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. 4. UPON ASSESSEES APPEAL LEARNED CIT(A) NOTED THAT THE ASSESSEE HAS PLACED RELIANCE UPON ITS OWN ASSESSMENT ORDER FOR EARLIER ASSESSMENT YEAR AND HAS FURNISHED NO DETAILS WHATSOEVER. LEARNED CIT(A) FOUND THAT RES JUDICATA DOES NOT APPLY TO TAXATION PROCEEDINGS. HE NOTED THAT WITHOUT ITA NO.340/MUM/2017. SHRI KETAN J.SHAH 3 SUBMITTING ANY DETAIL WHATSOEVER ABOUT THE NEXUS BETWEEN INTEREST EARNED AND INTEREST EXPENDITURE, INTEREST EXPENDITURE CANNOT BE ALLOWED. HE FURTHER NOTED THAT ASSESSEE HAS MADE INVESTMENTS, THE INCOME FROM WHICH IS NOT TAXABLE. HENCE, LEARNED CIT(A) OPINED THAT THE INTEREST EXPENDITURE IS ALSO LIABLE TO BE DISALLOWED U/S 14A READ WITH RULE 8D. THE OBSERVATION OF THE LEARNED CIT(A) ARE AS UNDER:- ON APPLICATION OF AFORESAID LEGAL PROPOSITIONS TO THE FACTS OF THE PRESENT CASE, THE INESCAPABLE CONCLUSION IS THAT THE APPELLANT HAS FAILED TO DISCHARGE THE ONUS TO PROVE THAT THE INTEREST EXPENDITURE OF RS.14,14,570/- WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST INCOME OF RS.11,68,777/-. MERELY PRODUCING COPY OF THE COMPUTATION OF INCOME OR DETAILS OF INTEREST PAYMENT IS NOT ENOUGH TO CLAIM DEDUCTION OF THE INTEREST EXPENDITURE OF RS.14,14,570/-. IT IS WELL ESTABLISHED THAT THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS AND, THEREFORE, THE APPELLANT'S RELIANCE ON ASSESSMENT ORDER FOR A.Y.2012-13 WILL ALSO BE OF NO HELP. IN ORDER TO ESTABLISH THE NEXUS BETWEEN THE INTEREST EXPENDITURE INCURRED AND THE INTEREST INCOME EARNED, THE APPELLANT OUGHT TO HAVE PRODUCED HIS BOOKS OF ACCOUNT, BANK STATEMENT ETC. FOR VERIFICATION BEFORE THE A.O. WHICH WAS NOT DONE. EVEN AT THE APPELLATE STAGE, NO STEPS HAVE BEEN TAKEN BY THE APPELLANT TO BRING OUT THE NEXUS BETWEEN THE BORROWINGS ON WHICH INTEREST WAS PAID AND THEIR UTILIZATION WHICH RESULTED IN EARNING THE INTEREST INCOME. THE APPELLANT HAS NOT PLACED ON RECORD EVEN COPY OF HIS BALANCE SHEET, PROFIT AND LOSS ACCOUNT, CAPITAL ACCOUNT ETC. FROM PERUSAL OF COPY OF THE COMPUTATION OF INCOME FOR A.Y.2013-14, IT IS NOTICED THAT THE APPELLANT HAS EARNED CONSIDERABLE EXEMPT INCOME BY WAY OF DIVIDEND (RS.1,29,224/-) AND LTCG (RS.59,81,420/-) ON SALE OF SHARES DURING THE RELEVANT PERIOD. A PERUSAL OF COMPUTATION OF INCOME FOR A.Y.2012-13 REVEALS THAT THE APPELLANT HAD EARNED SHARE OF PROFIT FROM FOUR PARTNERSHIP FIRMS AMOUNTING TO RS.44,83,340/- WHICH WAS CLAIMED TO BE EXEMPT U/S.10(2A) OF THE ACT. HOWEVER, NO SUCH EXEMPT ITA NO.340/MUM/2017. SHRI KETAN J.SHAH 4 INCOME FROM SAID PARTNERSHIP FIRMS HAS BEEN DISCLOSED IN THE COMPUTATION OF INCOME FOR THE A.Y. UNDER CONSIDERATION. WHAT HAPPENED TO THE APPELLANT'S INVESTMENT IN SAID PARTNERSHIP .FIRMS IN THE A.Y. UNDER APPEAL IS THUS NOT KNOWN. BE THAT AS IT MAY, IT CLEARLY EMERGES THAT THE APPELLANT HAS MADE INVESTMENTS IN SHARES OF INDIAN COMPANIES AND IN PARTNERSHIP FIRMS INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME. THE APPELLANT HAS MADE NO ATTEMPT TO EXPLAIN THE SOURCES OF HIS INVESTMENTS IN AFORESAID SHARES, PARTNERSHIP FIRMS ETC. EITHER BEFORE THE A.O. OR EVEN AT THE APPELLATE STAGE. IT APPEARS THAT THE APPELLANT IS DELIBERATELY NOT FURNISHING THE RELEVANT DETAILS AND SUPPORTING EVIDENCE OF UTILIZATION OF BORROWED FUNDS, BECAUSE HE IS AWARE THAT IF PRODUCED, SUCH EVIDENCE WOULD GO AGAINST HIM. THE POSSIBILITY OF INTEREST EXPENDITURE BEING ATTRIBUTABLE EITHER FULLY OR IN PART TO THE MAKING OF AFORESAID INVESTMENTS YIELDING TAX FREE INCOME CANNOT BE RULED OUT. IN THESE CIRCUMSTANCES, IT IS HELD THAT THE INTEREST EXPENDITURE WOULD BE LIABLE FOR DISALLOWANCE U/S.14A R.W. RULE 8D OF THE I.T. RULES, 1962. IN VIEW OF THE ABOVE DISCUSSION, I DO NOT FIND ANY ERROR OR INFIRMITY IN THE ACTION OF THE A.O. IN HOLDING THAT THE APPELLANT HAD FAILED TO DISCHARGE THE ONUS OF PROVING THE NEXUS BETWEEN THE INTEREST EXPENSES INCURRED AND THE INTEREST INCOME EARNED AND CONSEQUENTLY IN DISALLOWING THE APPELLANTS CLAIM FOR DEDUCTION OF INTEREST EXPENSES AMOUNTING TO RS.14,14,570/- U/S.57(III) OF THE ACT. ALTERNATIVELY, SUCH INTEREST EXPENDITURE WOULD ALSO BE DISALLOWABLE U/S.14A R.W. RULE 8D, AS HELD ABOVE. THE DISALLOWANCE MADE BY THE A.O. IS, THEREFORE, SUSTAINED. 5. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. 6. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. I FIND THAT ASSESSEE HAS CLAIMED ALLOWANCE OF INTEREST EXPENDITURE AGAINST THE INTEREST INCOME EARNED WITHOUT SHOWING ANY NEXUS BETWEEN THE SAME. NO DETAILS WHATSOEVER IN THIS REGARD HAS BEEN SUBMITTED BEFORE THE AUTHORITIES BELOW. ITA NO.340/MUM/2017. SHRI KETAN J.SHAH 5 HENCE I DO NOT FIND ANY INFIRMITY IN THE OBSERVATION OF THE AUTHORITIES BELOW THAT ASSESSEE CANNOT BE ALLOWED ANY DEDUCTION OF THE INTEREST EXPENDITURE UNLESS COGENT NEXUS IS SHOWN FOR THE SAME WITH REGARD TO THE INTEREST INCOME EARNED. HOWEVER, I NOTE THAT LEARNED CIT(A) HAS PROCEEDED TO ALSO MAKE THE DISALLOWANCE BY HOLDING THAT THE SAME IS TO BE DISALLOWED U/S 14A READ WITH RULE 8D. I FIND THAT THIS IS A NEW GROUND OF DISALLOWANCE FOR WHICH LEARNED COUNSEL OF THE ASSESSEE HAS STATED THAT NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO REBUT THE SAME. 7. I FIND THAT INTEREST OF JUSTICE MANDATES THAT SINCE THE CIT(A) HAS ALSO MADE A DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 14A IT WAS INCUMBENT UPON THE LEARNED CIT(A) TO GRANT THE ASSESSEE AN OPPORTUNITY TO MAKE HIS SUBMISSIONS IN THIS REGARD. HENCE IN MY CONSIDERED OPINION, IT WOULD BE APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. ASSESSING OFFICER IS DIRECTED TO CONSIDER THE ISSUE AFRESH AFTER GIVING THE ASSESSEE PROPER OPPORTUNITY OF BEING HEARD. THE ASSESSEE IS DIRECTED TO MAKE THE NECESSARY SUBMISSIONS ALONG WITH NECESSARY EVIDENCES AS REQUIRED TO REBUT THE FINDING OF THE ASSESSING OFFICER AND THE LEARNED CIT(A). 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 01 ST DAY OF SEPTEMBER, 2017. SD/- ( SHAMIM YAHYA ) ACCOUNTANT MEMBER MUMBAI; DATED : 01 ST SEPTEMBER, 2017. DEVDAS* ITA NO.340/MUM/2017. SHRI KETAN J.SHAH 6 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A), MUMBAI 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE.